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Can a charge-holder appoint an administrator after a company has been wound up?

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Ordinarily, once a company is wound up there is a ban on the appointment of an administrator. However, there is a rarely used exception in the Insolvency Act 1986, Paragraph 37 of Schedule B1, which allows a qualifying charge-holder to apply to the court after a company has been wound up to place the Company in administration.

Francis Wilks & Jones has successfully made such an application for a factoring company, being a qualifying charge-holder, in respect of one of its clients which had been wound up by the court following a petition by HMRC.

The company operated in the construction and scaffolding industry, and considered that it had a substantial Construction Industry Scheme (CIS) rebate which it could set off against HMRC’s claim. Nevertheless, the directors, had considered that the best prospect of realisations for its creditors would be an orderly wind down of its existing contracts and a sale of its scaffolding stock as each project completed. The company managed to obtain two winding up hearing adjournments and also obtained a validation order from the court allowing it to make payments out of its bank account in support of the ongoing wind down.

In the context of what the directors believed to be the court’s ongoing support, a third adjournment of the winding up hearing on similar grounds was sought, but the court refused the adjournment and wound the company up. Despite the charge-holder having had the right to enforce its security by appointing an administrator using the “out of court” route before the winding up order, it chose not to as it had anticipated that the court would continue with its stance and be content for the Company to continue trading down outside of any insolvency process.

Rule 2.11 of the Insolvency Rules 1986, prescribes the content of the supporting witness statement, but in brief this needs to set out reasons why it has subsequently been considered appropriate that an administration application be made. A full and detailed account should therefore be set out as to why the charge-holder did not exercise its security rights before the winding up order was made, and a comparison should be shown as to the estimated outcome in both a winding up scenario and administration.

A court is not compelled nor will it lightly grant such an order without a sound persuasive case being made out. In the present case, timing was critical because of the nature of the business, the real threat of stock disappearing and more importantly from the charge-holder’s perspective, preservation of its main asset, the book debts. It was shown that an administration order would allow an administrator to continue trading on the existing contracts in an orderly wind down preserving the employment of staff for an extended period of time which liquidation would not have done. In this case the court was satisfied that the purpose of administration could be achieved by rescinding the winding up order and placing the company into administration.

For further enquiries, please get in touch with Tim Francis on: tim.francis@franciswilksandjones.co.uk